Rep. Mel Watt’s Long Odds Involve More Than Just Principal Forgiveness

Although several news reports have put the odds of Rep. Mel Watt’s confirmation as the director of the Federal Housing Finance Agency at 50% or less, the North Carolina congressman’s senate hearing could reveal more details about the Obama Administration’s plans for housing finance reform.

CUNA Senior Vice President of Legislative Affairs Ryan Donovan said he thinks Watt will get a hearing, and the process could “have some impact in the short term on housing finance reform.”

The North Carolina Democrat has previously supported so-called mortgage cramdown legislation that would force lenders to accept mortgage principal reductions in bankruptcy proceedings: he was an original co-sponsor of a mortgage cramdown bill in 2007 and voted in favor of Rep. John Conyers, Jr.’s (D–Mich.) cramdown bill that passed the house in 2009 but was killed in the Senate.

Current FHFA Acting Director Edward DeMarco has resisted pressure from the Obama Administration and some state attorneys general to include principal forgiveness in modification programs at Fannie Mae and Freddie Mac.

Watt, nominated by Obama earlier this week, was also one of 19 congressmen and women who urged the president during fiscal cliff negotiations in December to include principal forgiveness in any deal.

"Given the clear benefits of providing assistance to underwater borrowers, as well as the significant savings for the American taxpayers, we believe that provisions expanding such assistance should be part of any deal to resolve the fiscal cliff. At a minimum, such legislation should require that Fannie Mae and Freddie Mac offer principal reduction loan modificationsto borrowers who are net present value positive,” the letter stated.

However, Donovan said opposition to Watt’s confirmation isn’t about him personally, but instead about differences between Obama and Senate Republicans when it comes to housing finance reform.

“To an extent, he runs into the same issues that any nominee would,” the CUNA lobbyist said. “Party division on this issue is pretty significant.”

Donovan refused to speculate on Watt’s odds of confirmation, saying Democrats and Republicans could potentially cut a deal that could pave the way. However, he added that he hasn’t seen evidence of willingness between the two parties to compromise on the issue.

Industry lobbyist John McKechnie, partner at the Washington-based firm Total Spectrum, said housing finance reform has so many moving parts, it’s difficult to see a moving path forward.

“Against that backdrop, I don't think Congressman Watt's nomination changes much, because I don't think it's likely for him to be confirmed,” he said.

Despite the principal forgiveness issue and the fact that Watt’s district includes Bank of America’s headquarters in Charlotte, CUNA and NAFCU say they have a good relationship with the congressman.

“Congressman Watt has spoken before NAFCU’s Congressional Caucus, has always been accessible and open to credit unions and NAFCU,” said Executive Vice President Dan Berger, who will take over as the trade’s CEO in July. “He is a respected member of Congress, and we appreciate his willingness to meet regularly with NAFCU-member credit unions and to hear their concerns.”

Donovan said Watt thoughtfully studies issues brought to his attention.

“As a congressional staffer, I saw him many times in markups actually reading the bills and having them next to the code book, so as he looked at the bills he also looked at US Code to see broader impact of changes,” the CUNA vice president said. “When we’ve spoken with him, he has always had very good, strong and relevant questions and they’ve never been gotcha questions, they’ve been because he wants to understand the issue. And I think he’d take that perspective on any matter of public policy.”